China Boosted Asian Equities, Dollar Mildly Lower

Asian equities ex-Japan were generally boosted by strong rally in Chinese stocks as the week starts. The China government released on November 15 the details of a reform package addressing 16 areas with 60 major initiatives across almost all the areas. It is expected that tax reform, interest rate liberalization and adjustment to the one-child policy would likely to be executed in 2014. It appears that government would like to define again the roles of government and market by sharply reducing government's influence in resource allocation and allowing market to play a decisive role in this regard. The government would mainly be responsible for maintaining macro stability, improving public services, ensuring fair competition and strengthening regulations. The government would also establish an "ex-ante negative list". Private and foreign investments are allowed without prior approval to enter industries restricted by the negative list. The government also planes to allow market forces to determine prices of water, oil, natural gas, power, transportation and telecom. Although the reform plan appears comprehensive and aggressive, its success will be determined by policy design and execution.

In the currency markets, the moves are quite limited tough. The dollar is mildly softer against other major currencies. In particular, the GBP/USD is extending last week's rebound on Sterling's strength. Aussie and Loonie also strengthened against the greenback. As noted in our week's report, we'd pay attention to whether the USD/CAD would break 1.0397 support, or the AUD/USD would break 0.9421 resistance. That would signal underlying strength in Canadian and Aussie and would trigger our USD/CAD short and AUD/USD long strategies. Elsewhere, the yen was a bit higher consolidating last week's sharp decline.

In the Eurozone, ECOFIN finance ministers, after meeting in Brussels, agreed to "implement appropriate arrangements, including the establishment of national backstops ahead of the completion of this [asset quality review] exercise". Also mentioned in the statement, direct lending by the ESM is provided for only "when adopted according to the Euro area and national procedures". In Germany, it is reported that the German Constitutional Court decision on the ECB's OMT program might not be released until early next year, delaying from previous expectations of late this year.

Latest CFTC data showed deterioration in net positions in Euro and Yen on November 12 comparing to the prior week. Euro net longs dropped for the third straight week to 16.8k contracts, down from prior 33.1k, comparing with 2013 high of 72.1k made back in October. Sterling net short rose to -9.3k, from -2.4k. The yen net short rose sharply to -95.1k, from -73.8k and that's not far from 2013 high of -99.8k. Canadian dollar net short was relatively unchanged at -16.1k. Aussie net short rose slightly to -35.8k, from -25.1k.

On the data front, UK rightmove house price dropped -2.4% mom in November. Eurozone current account and trade balance will be released in European session. Canadian international securities transactions, US TIC capital flow and NAHB housing market index would be released in US session.